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As robos try to crash Envestnet's platform party, CEO Jud Bergman explains pivot to 'wellness' and tells where FolioDynamix and Yodlee stand

Ric Edelman is an early Envestnet 'wellness' pilot and Yodlee's expanding margins are -- maybe -- a good sign for that unit as it moves toward break-even

Wednesday, February 28, 2018 – 12:49 AM by Oisin Breen
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Chris Curtis: Yodlee’s revenue has grown 44%.

Brooke's Note: Envestnet may be the best roll-up in the RIA business (albeit of investment platforms) but its ability to do so is being tested like never before. In the past, the Chicago company's pure economies of scale and basic buttoned-down competency assured that it got good deals at good prices and added firms with little disruption. But M&A activity is often indicative of a maturing market where green fields turn brown and market leaders merge as a bulwark against shrinking margins. The FolioDynamix purchase fits partially into that category. Surely, buying the expensive, profit-bleeding, consumer-facing Yodlee was another matter. It was a much bigger gamble for a much bigger potential payoff -- namely a whole new destiny of data-driven financial advice. See: Yodlee schools RIA tech startups at The Vault and RIABiz stops by. Destinies don't form in months but creep forward over multiple years. With August 2018 marking the three-year anniversary of the Yodlee purchase, we are getting a real glimpse of where things are heading with real revenue change and plenty of ongoing drama.  

After buying New York-based TAMP FolioDynamix for a song and extracting fatter fees for Yodlee services, Envestnet Inc. may soon be the industry leader in providing outsourced wellness programs to financial advisors -- if such a category exists. See: Hitting home run, Envestnet buys FolioDynamix creating '$2-trillion' super-platform.

The Chicago-based software and investments outsourcer closed its deal to purchase $195-million FolioDynamix Jan. 2 and it is fast closing in on a time when its 2015 $660-million purchase of Yodlee will be accretive to earnings. See: With Envestnet shares deeply depressed, analysts cut Jud Bergman little slack on 4Q earnings call.

The data and digital aspects of these $850-million worth of purchases position Envestnet for its leap from a clearinghouse for low-margin investment management to higher-margin financial advice.

'Better outcomes'

“We see significant growth opportunities to establish Envestnet as the premier operating system for financial wellness, enabling better outcomes for a network of enterprises, advisors and clients,” says CEO and chairman Jud Bergman. Financial wellness has five main components: planning, budgeting, investing, managing credit and protecting, he adds.

Jud Bergman: I think that this is a new [phenomenon] and I think it may be with us for some period of time.

Bergman used Fairfax. Va.-based Edelman Financial Services LLC, with its nearly 36,000 customers and $21.7 billion in assets, as a pilot example for applying wellness. See: Edelman Financial gets its CEO from LPL but the chief executive's job description isn't exactly what the old one was.

For now, it amounts to support of the Edelman managed asset program by adding financial planning tools, unified managed account technology, and access to Envestnet's quantitative portfolios.

Word of this upmarket push comes amid a flurry of moves by robo-advisors and conventional software makers alike -- from Black Diamond to Riskalyze to Orion -- as they proclaim their plans to encroach on Envestnet's outsourcing and automation of investment management. See: The four-year ordeal Orion's president underwent to launch Eclipse -- a sprint to stay in the race with Tamarac and Black Diamond for rebalancing.

Nicely, thank you

When questioned by a reporter as to why the firm is pleased with a $600 million purchase that drags down earnings, Chris Curtis, chief financial officer of the firm's wealth business and head of investor relations, had this to say:

“During the past two years since becoming part of Envestnet. Yodlee’s revenue has grown 44%, and adjusted EBITDA has tripled -- up 239% -- from its 2015 results,” he writes in an email. 

Curtis points to the fact that Yodlee's 2016 losses of $38.5 million fell to $19.5 million by the end of 2017, and that revenues rose by 19%, from $130 million to $155 million. He also highlights that 2018 EBITDA figures are already in the black, and that 2017 EBITDA of $29.4 million is up 33% on 2016's $22.3 million. 

But with the term "wellness" still embryonic and amorphous, Wall Street analysts want Envestnet executives to speak about the Yodlee and FolioDynamix purchases in concrete terms. Bergman struck a similar note when quizzed by Wall Street analysts on Feb. 22, although he inferred that margin growth slowed as 2017 drew to a close. 

“[Yodlee's margin] expanded nicely as far as we were concerned,” he said. “We had some very nice margin expansion in the Yodlee segment during 2016 and the first half of 2017.” See A long-form explanation of why -- Wall Street be damned -- Envestnet's purchase of Yodlee might make sense.

FolioDynamix boost

Ric Edelman is named as an early adopter of Envestnet's expanding 'wellness' inventory.

It's easier to talk about FolioDynamix, Yodlee's more bargain-basement fellow TAMP, in conventional terms.

"As we begin 2018, we are focused on integrating FolioDynamix’s customers and employees," Bergman told analysts. "And, we continue to pursue our advice- and data-centric strategy to drive adoption of our wealth management and financial wellness platforms.” See: Greg Friedman rallies RIAs at Junxure conference -- then news of Envestnet-FolioDynamix deal turns up the heat.

FolioDynamix adds 9% to 10% in revenue growth and five to six percentage points in adjusted EBITDA growth right off the bat as integration commences, the company says.

Envestnet's wealth platform supports nearly 60,000 advisors, almost seven million investor accounts and handles almost $1.4 trillion in advisor-supported assets.

Staggering hoard of data

Account aggregation software firm Yodlee's promise in charting Envestnet's emerging wellness destiny lies in its more than 20 million paying users, the fact that it sells through more than 1,000 financial institutions -- including 13 of the top 20 such firms including Bank of America and Citi -- and counts PayPal and Personal Capital among its users. See: Almost lost in the robo shuffle, Personal Capital, in its 'special category,' is winning as told by an overlooked metric: revenues.

All that produces a staggering data hoard that will -- in theory -- help Envestnet know more about investors than it -- or their advisors -- know themselves. See: Envestnet buys Yodlee and its treasure trove of 'permissioned' data by selling its vision of the future of financial advice.

But two years after Envestnet splurged $660 million on Yodlee -- a sum amounting to one-third of Envestnet's then $1.6 billion market capitalization -- the purchase has delivered losses totaling $58 million, close to 10% of its total cost price. See: Envestnet stock skidded 35% -- so will it force a rethinking of the Yodlee deal?

The good news, says Curtis, is that Yodlee losses are paper losses.

“The loss figures cited are GAAP loss[es] from operations for the Yodlee segment, which include a significant amount of non-cash amortization of acquired intangibles. That expense has nothing to do with the performance of the business."

In the black in 2019

"Yodlee continues to perform in line with our expectations,” Curtis told RIABiz, “for both revenue and profitability.”

Indeed, should current revenue growth of 19% prove sustainable, and expenses continue to rise at the present rate of 3%, Yodlee is on track to be in the black at the end of 2019 and to deliver revenues of more than $200 million one year ahead of the target set by Bergman and Yodlee CEO Anil Arora in a September 2015 presentation. See: This time Envestnet plays most cards face up as analysts press again for cogent Yodlee deal rationalization

Going a step further, should Yodlee's current growth prove the rule rather than the exception over the next 10 years -- granted, an optimistic view that would see revenues climb almost seven-fold -- then the firm's own profits alone would cover the total cost of its purchase by 2028, according to a reporter's spreadsheet calculations.

The good news in the here and now for Bergman and Curtis is the near 60% climb in Envestnet's value. As of the end of February, Envestnet has a market capitalization of $2.6 billion. Add to that the fact that Yodlee is meeting its targets and contributing to its parents' longer-term financial strategy of deep-level aggregation and service integration. 

Giveth and taketh

Yes as good as M&A has been for Envestnet over the years as a booster of inorganic growth, Envestnet can fall victim to its downside when clients merge because it tends to serve custodians who can't build a platform in-house. When smaller firms get swallowed up, assets get switched to the buyer's system.

Sandler O'Neill & Partners LP analyst Chris Donat raised that very topic on last Thursday's call.

"Jud, [Reflecting on a] couple of client losses as you think about the history of Envestnet, it's not something I have seen very often, I mean, it seems like the exception approves the rule that you don't lose clients very much.

Bergman replied: "With respect to the increase of level of merger and acquisition activity and financial services in general and in particular within broker dealers and the custodial area, I think that this is a new [phenomenon] and I think it may be with us for some period of time." See: Jud Bergman defies advisor feedback as Envestnet stares down the barrel of change.

In an earlier version of this story, Chris Curtis was misidentified as CEO of Envestnet. He is chief financial officer of the firm's wealth business and head of investor relations.

Related Moves

Behind the scenes, Envestnet's board of directors had much to tussle over before finally subtracting the 'interim' from Bill Crager's CEO title

With Jud Bergman gone at a chairman, a power struggle ensued to fill that spot, and the process dragged when taking the company private came under review

April 2, 2020 – 2:34 AM

Envestnet just named an ESG head to meld 'wellness,' 'The Intelligent Financial Life' and 'sustainable investing' into a single nirvana -- that starts outside of the product realm

Ron Ransom earned CEO Bill Crager's trust as chief business development officer and now will define how Envestnet conducts itself as a global citizen and vendor of wellness.

July 27, 2022 – 2:27 AM

Envestnet and Edmond Walters end odd couple 'Apprise' relationship with buyout, but leave open the door to jointly pursue RIA-to-entrepreneur dashboard... later

The MoneyGuidePro owner and eMoney founder execute clean break with Apprise IP rebranded as 'Wealth Studio.' Walters off to the races with a startup and vague promise to collaborate later.

April 6, 2021 – 12:50 AM

Envestnet turns to former FIS executive -- and replaces a CTO -- to help shape up the firm's disparate offerings into a unified whole around the concept of 'wellness'

The Chicago outsourcer gets Donna Peeples to harmonize products and marketing to move beyond the 'TAMP' label as Orion contends for market share with Brinker added.

November 10, 2020 – 2:45 AM

See more related moves

Mentioned in this article:

Envestnet Inc
Top Executive: Jud Bergman



March 13, 2018 — 3:04 AM
Envestnet is poor platform and unintelligent company frankly. I have been using their platform, and moving away from it as best I can, for years. They have a strange trading logic and even their top architects can't explain it well. I would use anyone else given a choice but they are my BD's platform. Miserable experience and they have created stress in my life and business to a large degree.
Stephen Winks

Stephen Winks

March 7, 2018 — 5:45 PM
The pivot to "wellness" responding to the well being of the client is very generalized attempt to addreess fiduciary duties without incurring fiduciary liability, recognizing that b/ds will not support fiduciary duties of the broker. Though it falls short of expert fiduciary standing, it is a move forward. There is no substitute for supporting the best interest of the investing public as required by statute for professional standing, "wellness" is as far as brokers can go without fulfilling their fiduciary duties which trigger fiduciary liability. SCW

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